Budget Report

Budget Report Definition

Budget Report generally refers to the projected reports that shows future planning of an organization about how to meet out their expenses, how to achieve its income target to sustain in the market, how to invest in the market for their growth, how to acquire assets.

Example of Budget Report

  • The budget report is helpful in identifying the estimation of future growth of sale, which is required to sustain in the market. It also identified how the company would achieve the sales target by acquiring new customers, new business units, new segments.
    For example, suppose an organization makes a goal that $ 200000 sales will achieve in the upcoming next month, which can be done by reducing their sale price per unit, acquiring new customers by giving them a discount.
  • The budget report is used to identify the estimation of how many units of production required to fulfill the demand for sale. It also estimates how much will be the labor costLabor CostCost of labor is the remuneration paid in the form of wages and salaries to the employees. The allowances are sub-divided broadly into two categories- direct labor involved in the manufacturing process and indirect labor pertaining to all other processes.read more, materials cost needed to make a business profitable.
    For example, suppose there is a demand for 1000 units and the selling price per unit $ 20. To achieve this target organization has to estimate 1000 units of production, and it has to estimate how much labor cost, raw materials cost needed to make the production cost per unit lower than $ 20 to maintain a profit.
  • These reports provide estimation for advertisement, promotion, research, and development needed to increase their sales revenue.
    For example, today ‘s world is so competitive, and there are numerous products and services which are available in the market. Advertising and promotion are important ways to bring the attention of a customer.
  • This report is needed to estimate the upcoming expense and income. It generally covers the short term period. It helps to identify how income is sufficient to meet the expenses. It also identifies the need for outside financing when it is required.
  • It provides information about how an organization will invest in new machinery, new product, replacement of old machines, whether the same is fruitful for the organization.
  • All the expenses under the budget need approval, and nothing will carry forward from the previous year’s budget. It is very useful when there are limited resources available in the organization.
Budget-Report

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Source: Budget Report (wallstreetmojo.com)

Advantages of the Budget Report

For example, there is litigation going on, and if the organization loses the case, it requires a huge amount to pay, they might have to sell some assets to pay the same, which can question ongoing concern assumption.

Disadvantages of the Budget Report

  • It generally considered an only future expense, income, investment, asset.
  • It doesn’t provide information relating to the current situation.
  • Preparation of budget is time-consuming and required an expert to prepare the same, and that involves cost also.
  • Sometimes budget reports might manipulate or hide some information that can be useful for the decision making the process.
  • Anyone can blame others if the budgeted report not achieve.
  • Sometimes it is misused by the department.

For example, suppose an organization fixed an expense budget for a particular department, say $ 10000. They will use all the amount unnecessary by knowing that there is a fund available.

Limitations 

  • It is totally based on the assumption, and it can not provide realistic information.
  • The budget report prepared in the current year might change in next due to rapid change in the market.
  • It sometimes involves manipulation to keep senior management happy.
  • It is focused only on financial matters of the future; it does not provide other information such as consumer behavior, market conditions, quality of a product.
  • It does not provide any information for an existing situation.

Important Points 

Budget Report is prepared based on assumptions, and there will be a high chance for variations in the report. To overcome this, a report should be prepared based on a realistic approach. In case of any changes in the report should be brought to the notice of management.

Conclusion

This report is highly important for every organization to achieve its long term goal. Proper training and skill must be given to employees for Budget report preparation. Most of the decisions of an organization are taken based on the Budgeted report.

This has been a guide to Budget Report. Here we discuss the types of the budget report along with an example, advantages, disadvantages, and limitations. You can learn more about from the following articles –